‘Chinese fund’ gobbling up Japan equities amid euro crisis

Europe’s financial turmoil has led the Chinese government to quietly pour tens of billions of dollars into Japan’s stock market despite lingering historical animosity, analysts say.

For years, the two Asian powerhouses have eyed each other suspiciously and frequent diplomatic spats have flared up over territorial claims and long-standing bilateral disputes, largely stemming from the war.

But with economic ties improving and Europe in a debt crisis, an ever more practical Beijing is buying up shares in Japanese firms as it looks for safer places to stash its mountainous foreign-exchange reserves, the largest in the world.

A fund known as OD05 Omnibus, widely viewed as linked to Beijing, was a major shareholder in 174 Japanese firms by the end of March, including Toyota Motor Corp. and Nikon Corp., according to a survey by the Nikkei business daily, which put the value of the investments at ¥3.58 trillion. The survey showed the fund’s shareholdings have more than tripled since the 2008 global financial crisis.

The findings come as Tokyo and Beijing are forging ever closer economic ties.

The ownership of Omnibus, reportedly based in Australia, has never been publicly acknowledged, but dealers think it is backed by China’s sovereign wealth fund, China Investment Corporation, and is charged with managing some of Beijing’s $3 trillion foreign currency war chest.

“When Europe is in such financial turmoil, Beijing needs to diversify its investment destinations,” said Tsuyoshi Ueno, senior economist at NLI Research Institute in Tokyo. “China has so much in foreign currency reserves, and they need to invest it in blue-chip companies.”

The CIC’s chairman has reportedly said the fund is scaling back its European equity and bond holdings, telling the Wall Street Journal this month that “there is a risk the eurozone may fall apart and that risk is rising.”

Japan has struggled for years, but it is increasingly seen as a safe haven by investors as Europe struggles to rein in its crisis and questions swirl about a recovery in the United States.

Omnibus’s portfolio includes stakes of 1.9 percent in Toyota, 1.9 percent in Nikon, 2.2 percent in Honda Motor Co. and a 2.5 percent in Komatsu Ltd., the Nikkei survey said.

A Chinese fund manager said Omnibus quietly invests in a cross-section of corporate Japan, but deliberately keeps its stake well below majority ownership.

However, “there is nothing wrong with the fund’s investment, and it’s not bad news for Japanese companies,” said Yasuyoshi Masuda, an economics professor at Toyo University.

He acknowledged Japan should be wary of the Chinese government investing in firms with links to the military or cutting-edge technology, but said that otherwise, “Japan’s stock market should welcome foreign capital investment.

“It’s not like the Chinese fund owns more than 50 percent of a major Japanese firm,” he said.